US Expats’ Guide to Canadian RRSPs: How to Handle Your RRSP Without the Tax Headaches
Thanks to Revenue Procedure 2014-55, the IRS automatically gives US taxpayers tax-deferred treatment on RRSP growth. You don’t need to file complex annual elections or worry about being taxed each year on money sitting in your Canadian retirement account.
Whether you contributed to an RRSP while living in Canada or are still there, your RRSP won’t create the tax nightmare you might expect. The US-Canada tax treaty provides fundamental protections, and the Foreign Tax Credit typically eliminates double taxation when you withdraw funds.
With proper planning, most US expats pay little to no additional US tax on their RRSP, and the compliance requirements are far more manageable than you probably think. You can breathe easier knowing that thousands of Americans have successfully managed their RRSPs while staying fully compliant with both countries’ tax rules.
How Does the US Tax Your RRSP Contributions and Growth?
Since 2014, all eligible US taxpayers automatically receive tax-deferred treatment on RRSP growth without filing Form 8891. This means your RRSP grows tax-free for US purposes until you withdraw funds, just like it does in Canada.
While You’re Contributing:
- Canada treats your RRSP contributions as tax-deductible
- The US generally doesn’t allow the deduction on your US return
- But here’s the key: If you’re using the Foreign Earned Income Exclusion (FEIE) to exclude your Canadian salary (up to $130,000 for 2025), this mismatch often doesn’t matter since you’re not paying US tax on that income anyway
While Money Grows in Your RRSP:
- No annual US taxation on investment gains, dividends, or interest
- No complex forms to file each year
- Automatic treaty protection without elections
Should You Contribute to an RRSP as a US Expat?
This depends on your tax strategy and long-term plans:
RRSP contributions make sense if:
- You’re using FEIE to exclude your Canadian income from US taxation
- You plan to withdraw funds while in a lower tax bracket
- You expect to be a Canadian resident when withdrawing (avoiding non-resident withholding)
- You’re maximizing Canadian tax benefits and FEIE covers US obligations
Consider other options if:
- You’re paying full US tax on your Canadian income (not using FEIE)
- You plan to return to the US permanently before retirement
- Your Canadian tax rate is much lower than your US rate
The decision between using FEIE vs Foreign Tax Credit significantly impacts whether RRSP contributions make sense. FEIE works better for most expats in lower-tax provinces, while Foreign Tax Credit often works better in high-tax provinces like Ontario or Quebec.
What Happens When You Withdraw from Your RRSP?
This is where planning pays off. The tax treatment depends heavily on your residency status when you withdraw:
If You’re Still a Canadian Resident
- No withholding tax applied
- Withdrawal is included in your regular Canadian tax return
- You report the full amount on your US return
- Use the Foreign Tax Credit to offset Canadian taxes paid
If You’re a Non-Resident of Canada
Canada applies withholding tax:
- 25% on lump-sum withdrawals
- 15% on periodic pension payments under the US-Canada tax treaty
- 10% on the first $4,000 annually (treaty benefit)
Converting your RRSP to a RRIF can reduce withholding from 25% to 15% on all payments, not just the minimums.
US Tax Treatment
The US treats all RRSP withdrawals as ordinary income that must be reported on your tax return. However, you can use the Foreign Tax Credit to offset any Canadian tax paid, often eliminating your US tax liability entirely.
Real Example: Maria withdraws $75,000 from her RRSP as a non-resident. Canada withholds $18,750 (25%). On her US return, she reports $75,000 as pension income. Her US tax on this amount would be $16,500, but she claims $16,500 as a Foreign Tax Credit, resulting in zero additional US tax owed.
What Forms Do You Need to File for RRSP Reporting?
The reporting is simpler than most expats think:
Required US Reporting:
- Form 1040: Report all RRSP withdrawals as pension income
- Form 1116: Claim Foreign Tax Credit for Canadian taxes paid
- FBAR: If total foreign accounts exceed $10,000
- Form 8938: If RRSP meets FATCA thresholds
What You DON’T Need:
- Form 8891 (eliminated in 2014)
- Form 3520 (RRSPs are specifically exempt under Revenue Procedure 2014-55)
- Annual reporting of RRSP growth
Common Mistakes US Expats Make with RRSPs
Ignoring FBAR Requirements
Your RRSP counts as a foreign financial account. You must file FBAR if your total foreign accounts exceed $10,000 at any point during the year. Penalties start at $12,921 per account, even if you owe no tax.
Not Planning Withdrawal Timing
Taking large lump sums while a non-resident triggers maximum withholding. Strategic timing around residency changes or RRIF conversion can save thousands.
Mixing FEIE and Foreign Tax Credit Incorrectly
You cannot use both benefits on the same income. Choose the strategy that minimizes your overall tax burden across both countries.
Poor Record Keeping
Track all contributions, growth, Canadian taxes paid, and withdrawal dates. You’ll need this for proper US reporting and to maximize your Foreign Tax Credit.
How to Choose Between FEIE and Foreign Tax Credit?
This choice dramatically impacts your RRSP strategy:
Foreign Earned Income Exclusion (FEIE):
- Excludes up to $130,000 of Canadian employment income (2025)
- Makes RRSP contributions more attractive since you’re not paying US tax anyway
- Better for expats in lower-tax provinces
- Must meet Physical Presence Test (330 days abroad) or Bona Fide Residence Test
- Provides dollar-for-dollar credit for Canadian taxes paid
- Often better for high earners or those in high-tax provinces
- More complex but frequently more beneficial overall
- Can be used on passive income that FEIE cannot cover
Advanced Planning Strategies
Pre-Return Planning
If you’re planning to return to the US:
- Consider your state of residence (some don’t recognize tax treaties)
- Time large withdrawals while still a Canadian resident to avoid withholding
- Evaluate RRIF conversion to spread income over multiple years
Estate Planning Considerations
RRSPs receive favorable treatment under the US-Canada tax treaty for estate purposes, but proper planning is essential to avoid complications for your beneficiaries.
Your Peace of Mind Action Plan
Your path to RRSP compliance doesn’t have to be overwhelming. Here’s your straightforward approach:
Immediate Steps:
- Verify you’re compliant with FBAR and Form 8938 requirements
- Decide between FEIE and Foreign Tax Credit for your ongoing strategy
- Keep detailed records of all RRSP activity and taxes paid
Before Major Decisions:
- Calculate the total tax impact of large withdrawals
- Consider your long-term residency plans
- Evaluate timing strategies around RRIF conversion
Professional Guidance: The intersection of US and Canadian tax law is complex enough that many expats benefit from professional help, especially when dealing with large RRSP balances or major life changes.
No matter how late, messy, or complex your return may be, we can help. If you’re ready to be matched with a Greenback accountant, click the get started button below. For general questions on expat taxes or working with Greenback, contact our Customer Champions.
Whether you’re years behind or just unsure about the thresholds, our team is ready to help.
This article provides general guidance on RRSP management for US expats. Tax laws are complex and change frequently. Always consult with qualified tax professionals who specialize in US-Canada cross-border taxation before making major decisions about your RRSP.
